Franklin Street favors mixed-use tower at TCF site

Massachusetts-based investment firm Franklin Street Properties is in talks with a housing developer for the redevelopment of the TCF Bank building site on Marquette Avenue in downtown Minneapolis into a mixed-use tower.

While there are no formal agreements, chief investment officer John Carter announced during a quarterly conference call Wednesday that a “premier national residential group” is interested in the 801 Marquette building. He would not identify the group. Reached for comment Thursday, Carter said he couldn’t disclose any more information other than what was provided on the call for the investors of the publicly traded company.

The four-story office building is adjacent to the TCF Bank tower, which is at 121 S. Eighth St. Previously, Franklin Street Properties said it would raze or renovate the Marquette building for either a six- to eight-story office building or a 45-story mixed-use tower.

The 17-story TCF Bank tower would remain on the site.

So far, the development team favors the mixed-use tower option for 801 Marquette, Carter said. The tower could include residential, hotel, retail and office space. Franklin Street would most likely own and construct the office portion — in the 200,000-square-foot range — and seek partners for the other uses. Initial estimates for the office project in the tower are between $65 million and $80 million.

With a residential developer interested in the site, Carter said the company is now looking for a hotel group. Adding a hotel is significant, he said, because it could boost tenant demand and potential rents.

Hotels can boost office rental rates because they are an amenity for office users, said Jon Ruzicka, a hospitality broker in the Minneapolis office of Marcus & Millichap. Office tenants become a core source of business for the hotel.

“They play off of each other very well,” Ruzicka said.

While Ruzicka said the downtown hotel market is “extremely hot,” the occupancy rate for the entire metropolitan area is slightly lower than last year. From January to June 2014, the rate was 66 percent, but year-to-date it’s slightly lower at 65.9 percent, he said. The decrease is not cause for concern, he said because there’s been an uptick in rates and hotel sales are shattering price-per-room records.

A new hotel development would likely be a new offshoot of a brand — like Hilton’s Canopy — because most of the major brands are represented currently, he said.

TCF Bank leases about 165,000 square feet in the 801 Marquette building and 90,000 square feet in the adjacent 17-story tower, which Franklin Street also owns. The bank’s lease expires in January 2016, Janet Notopoulos, president of Franklin Street’s property management division, said during the call. If a redevelopment is pursued on the site, Franklin Street would lose approximately $805,000 per year due to the closure of the parking ramp, she said.

The TCF Bank building is on a roughly 0.84-acre site immediately north of the iconic Foshay Tower and west of the TCF tower. Hennepin County values the 84-year-old property at $6.02 million, according to property tax records.

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